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August 08, 2007

CMS forges ahead with pay-for-performance (P4P) initiatives

Pay-for-performance (“P4P”) is already an all-too-familiar catchphrase, and it is about to become pervasive, as CMS prepares to jump into the fray more decisively than ever.

CMS’s involvement in P4P on a program-wide basis remains limited to “pay-for-reporting.”  However, over the next couple of years, through the CMS Value-Based Purchasing initiative, the changeover to true P4P will begin.  (See earlier HealthBlawg discussion of VBP and link to CMS materials.)

To date, CMS has paid hospitals (or, rather, has not withheld) 2% of annual payments based on compliance with certain reporting requirements for ten indicators under the Reporting Hospital Quality Data for Annual Payment Update (“RHQDAPU”) program authorized by the MMA and the DRA.  In addition, physicians were brought on board, for the last six months of 2007, through the Physician Quality Reporting Initiative (“PQRI”) program.  This program represents an opportunity for physicians to earn up to 1.5% more on their Medicare billings, and was authorized as part of the legislative override of the sustainable growth rate-(“SGR”)-driven pay cut that would otherwise have hit physician reimbursement for services provided to Medicare beneficiaries this year.  Physician practices have had to invest in the administrative capacity to capture and report data on 74 measures under PQRI.

Recently released Medicare regulations including the physician fee schedule (“MPFS”) (draft released July 2, 2007; see CMS MPFS fact sheet, HealthBlawg post), hospital inpatient prospective payment system (“IPPS”) (final released August 1, 2007; see CMS IPPS fact sheet, HealthBlawg post) and hospital outpatient payment system (“HOPPS”) (draft released July 16, 2007; see CMS HOPPS fact sheet, HealthBlawg post) will expand the pay-for-reporting system.  Under these new and proposed new rules: (1) as an expansion of the PQRI program, physicians will have to begin reporting on additional measures from seven defined categories, provided that the measures are either endorsed by one of two quality organizations, (2) under the IPPS rule, hospitals will have to report on five new indicators in 2008 in order to get the full benefit of the market-basket inflation adjustment in 2009 and (3) HOPPS payments will be subject to the same 2% penalty as is in place under RHQDAPU if hospital reporting of ten new measures -- and 30 proposed measures -- is not carried out. 

It is important to note that none of these regulations includes a mechanism to increase payment to some providers beyond market-basket inflation.  When the pay-for-reporting system begins to transition to P4P, expect to see benefits to some providers accompanied by a reduction in reimbursement to other providers.  This approach is built into the statutory framework, and is in notable contrast to Britain’s National Health Service experience.  NHS implemented a non-zero-sum P4P program in 2004, which broke the bank when provider response to incentives (or gaming of the system, depending on your perspective) outstripped all expectations.

P4P systems have been in place among some private payors, and CMS has sponsored a number of P4P demonstration projects, perhaps most notably the Premier Hospital Quality Improvement Demonstration (“HQID”) project.  (Premier is also currently rolling out a new P4P project, called QUEST.)  About 250 hospitals are participating in the three-year HQID project, and it highlights the benefits and the limitations of using P4P in a zero-sum reimbursement environment. 

Benefits include the improvement of targeted quality indicators as a direct result of the financial incentives proffered to providers.  The countervailing cost is the siphoning of funds away from the providers that performed more poorly.  Could they and their patients, perhaps, have benefited more from the funds diverted to better-performing providers? 

Other questions about P4P include: Does it shift providers’ focus to a few (or even to many) enumerated quality indicators, to the exclusion of all else?  I would not expect providers to be blinded to other issues facing their patients, but the question of financial incentives potentially clouding clinical judgment has been raised repeatedly by elected leaders (Rep. Pete Stark and Sen. Chuck Grassley come to mind) and others, so the question bears consideration.

Again, CMS is moving slowly but inexorably towards P4P, and the provider community has to be ready, both in terms of having the infrastructure in place to support capture, coding and transmission of data in the current pay-for-reporting phase, and in terms of being prepared to alter patterns of practice in order to improve compliance with quality indicators for the benefit of patients as well for the benefit of providers’ bottom lines.

-- David Harlow

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